After three years in free fall, federal, state, and local government revenues are starting to show signs of a pickup. Though the gains still remain far short of what's needed to turn around the worst fiscal crisis in two decades, across much of the country, revenues finally appear to be bottoming out for this business cycle.

New York City collected $300 million more than expected between July and September, for example, thanks to a resurgent stock market. In Massachusetts, September revenues were up about $79 million, or 5%, from the year before. Out in California, Governor-elect Arnold Schwarzenegger looks set to get a bit of a break on revenues as he tackles the state's massive deficit.

And thanks in part to a modest bump up in tax receipts, the federal deficit for the fiscal year that ended on Sept. 30 will come in at about $374 billion, below the Congressional Budget Office's $401 billion August forecast.

Those gains have officials breathing a sigh of relief, even if they remain spotty. While strong profits have boosted corporate taxes, individual income taxes are flat at best. In Massachusetts, for example, corporate taxes were up 17% in September, but individual withholding was down 1.5%.

States still face massive deficits. Their costs, especially for health care and education, continue to skyrocket. Still, any hint of good news has state and federal budget experts hoping they've seen the worst of yawning budget shortfalls.

By Howard Gleckman in Washington

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